The government's Work Programme was introduced in June 2011 at an estimated cost of between £3bn and £5bn over five years. Photograph: Christopher Thomond for the Guardian

The government's flagship multibillion-pound programme for helping the long-term unemployed into work has been branded "extremely poor" in a damning assessment by MPs.

The public accounts committee (PAC) said that during the first 14 months of the Work Programme, to last July, only 3.6% of claimants on the scheme moved off benefits into sustained employment.

This was less than a third of the 11.9% the Department for Work and Pensions (DWP) expected to achieve, and well below the official estimate of what would have happened if the programme had not been launched, said the MPs.

Margaret Hodge, who chairs the committee, said the programme was particularly failing young people and the hardest to help.

She said: "It is shocking that of the 9,500 former incapacity benefit claimants referred to providers, only 20 people have been placed in a job that has lasted three months, while the poorest-performing provider did not manage to place a single person in the under-25 category into a job lasting six months."

She also criticised the DWP for publishing unvalidated data from a trade body representing Work Programme providers, saying: "This is just not on."

The programme was introduced in June 2011, at an estimated cost of between £3bn and £5bn over five years, but PAC said the performance in the first year or so fell well short of expectations.

Not one of the 18 providers met its contractual targets and their performance varied "wildly", the report found.

The MPs warned that, given the poor performance, there was a high risk that one or more providers would fail and go out of business or have their contracts cancelled.

"Given the poor performance across providers, there is a high risk that one or more will fail – either they will go out of business or the department will cancel their contracts," the report says. "The Department will need to keep a close eye on which providers are most likely to fail and must manage all consequential risks."

The report also reveals that all 18 organisations involved in the Work Programme, which include companies such as A4e and Ingeus Deloitte, have been placed on "performance improvement plans" and that in seven cases, organisations had been sent formal letters warning of unacceptable standards.

The next set of performance data will be published in March, which PAC said should give the DWP a better idea about companies that may go out of business or have contracts terminated, and urged the department to prepare specific contingency plans should failure occur.

Hodge said, that although the Work Programme was crucial, its performance "was so poor that it was actually worse than the department's own expectations of the number of people who would have found work if the programme didn't exist."

"None of the providers managed to meet their minimum performance targets. The best performing provider only moved 5% of people off benefits and into work, while the worst managed just 2%."

The DWP said PAC was painting "a skewed picture" and that industry data also published in November showed that 200,000 people had been placed in work. The department believes that a large proportion of these will turn out to meet the payment criteria of jobs sustained for at least six months and this will show up in the next round of data.

A DWP spokesperson said: "The Work Programme gives support to claimants for two years and it hasn't even been running that long yet, so it's still early days. We know the performance of our providers is improving … Long-term unemployment fell by 15,000 in the latest quarter."

Previous schemes, the department said, had paid out "too much up front regardless of success. But by paying providers for delivering results, the Work Programme is actually offering the taxpayer real value for money."

Kirsty McHugh, chief executive of the back to work industry body, the Employment Related Services Association, said, "The public accounts committee should rightly focus on the Work Programme achieving value for money for the taxpayer, and data published by ERSA shows that the Work Programme is the most cost effective scheme relative to any comparable scheme so far.

"'These outcome statistics relate to the earliest days of the Work Programme and caution is needed before we can judge its overall effectiveness.

"However, robust data published by ERSA last November shows that the Work Programme is placing more people into work month on month and we can already see the programme having a demonstrable impact in reducing long-term unemployment as evidenced in this week's labour market statistics."